US Dollar Sinks After July Non-Farm Payrolls Show Unexpected Job Losses
Key Takeaways
- •The US economy shed 23,000 non-farm jobs in July, sharply missing the consensus forecast of an 80,000 gain and falling below the lowest economist estimate.
- •Revisions to the prior two monthly reports reduced payrolls by a combined 103,000 jobs, dragging the three-month average down to approximately 20,000 positions.
- •Following the release, the market-implied probability of a Federal Reserve rate hike in September declined from 57% to 44%.
- •The US dollar weakened broadly, with USD/JPY dropping 127 pips and USD/CAD falling 65 pips, while gold surged $122 to $4,360 and S&P 500 futures rose 41 points.
- •Nearly one million workers have exited the US labor force since May, contributing to a sharp decline in the labor force participation rate and raising concerns about underlying economic health.
The US non-farm payrolls report for July revealed an economy in significantly worse condition than economists had anticipated, sending the US dollar broadly lower and triggering a sharp repricing of Federal Reserve rate-hike expectations. The report lands at a delicate moment for policymakers, who have been attempting to cool inflation without tipping the economy into recession—a balance widely referred to as a soft landing.
The data showed the US economy shedding 23,000 jobs in July, far below the +80,000 gain expected and below the lowest estimate in the survey of economists. The prior two monthly reports were also revised lower by a combined 103,000 jobs, bringing the three-month average down to just 20,000 jobs. Non-farm payrolls are subject to successive revisions, meaning the initial print can shift materially in subsequent releases.
Markets had been leaning toward a Federal Reserve rate hike in September, with that outcome priced at 57% just before the release. Following the data, that probability fell to 44%.
The US dollar dropped across the board in response. USD/JPY fell particularly hard, shedding 127 pips on the day to 157.14. The dollar also tumbled against the Canadian dollar, as Canada's simultaneous employment report showed 75,100 jobs added compared to 15,000 expected. USD/CAD declined 65 pips to 1.3948, its lowest level since June 15.
Gold was a major beneficiary of both the dollar's decline and the recalibration of Fed rate expectations. After rallying earlier in the week, gold surged $122 to $4,360, with the weekly chart showing a significant bounce following months of selling pressure.
Equity markets reacted positively, as the weak jobs number reduced the likelihood of further monetary tightening. S&P 500 futures rose 41 points, roughly doubling pre-market gains. However, market observers noted that much of the focus in stock markets remains on the AI and technology trade rather than broader economic conditions.
In the bond market, US 2-year yields fell 6.8 basis points to 4.17%. Two-year yields are particularly sensitive to shifts in Fed policy expectations, and the decline reflected a rush toward safer assets amid concerns over a potential economic downturn.
Some analysts expressed skepticism about the report's severity. ADP and ISM employment indicators did not signal a major contraction or sudden decline in US hiring, suggesting the figure may rebound in subsequent reports. The data is expected to reignite debate over what constitutes the steady-state level of monthly job gains consistent with "full" US employment, particularly given aging demographics and low immigration. Some Federal Reserve officials had previously indicated that monthly gains of around 20,000 jobs were sufficient.
A particularly concerning aspect of the labor force data was the number of workers exiting the workforce, with nearly one million workers lost since May alone, accompanied by a sharp decline in the labor force participation rate.
US July non-farm payrolls: -23K vs +80K expected
